Tax NewsFlash - June 2021

Dear Readers,

On 1 July 2021, the new Environmental Code entered into force. This NewsFlash issue outlines changes¹ to the Tax Code (hereinafter, the “Amendments”) related to the introduction of the new Environmental Code.

One of the main principles of the new environmental legislation is the polluter pays principle. Instead of regulating all environmental users, the new environmental legislation focuses on major polluters.

Polluters significantly affecting the environmental are included in the first category. The second, third and fourth categories include entities with moderate, minor and minimal environmental impacts, respectively. Polluters of the first, second and third categories are subject to the environmental payments, while the fourth category are excluded from the tax regulations due to the insignificance.

Taxable base for objects of the first and second categories is limited by the emission thresholds established in the corresponding environmental permit. For the third category the permit regime is cancelled, and the tax base is limited by the declared amount of emissions.

Starting from 1 January 2025, the Amendments will double environmental payment rates for pollutions from stationary sources, for discharges of pollutants and for waste disposal. At the same time, the Amendments will eliminate a provision allowing the Maslikhats to double all rates. The right of Maslikhats to apply a multiplying factor to the environmental payment rates will be limited only to payments for landfill municipal waste.

To provide economic incentives for enterprises to use the best available environmental protection techniques, the Amendments stipulate an exemption from the environmental payments (in the form of applying a zero coefficient to the payment rates) for taxpayers that received a comprehensive environmental permit to implement the best available techniques. The state environmental authorities will issue comprehensive environmental permits. The Government will approve the statement on the best available technique on the basis of the approved reference books.

A comprehensive environmental permit is mandatory for the first category entities. Other entities are entitled to voluntarily obtain a comprehensive environmental permit if the approved best available techniques are available for the relevant technological process or industry.

If a taxpayer fails to comply with the environmental program stipulated by its comprehensive environmental permit or in case of a withdrawal of the permit, the zero coefficients will be replaced with the step-up coefficients applicable in the absence of the comprehensive environmental permit. The tax authorities will assess an interest penalty on the outstanding environmental payments starting from the initial payment due date. The value of the step-up coefficients will gradually increase from 2022 to 2037.

The Amendments introduce some editorial changes to the Tax Code to bring the terminology in line with the new Environmental Code. The term emissions into the environment was replaced with negative impact on the environment. The Amendments reverted to the state revenue authorities the responsibility for monitoring the fulfillment of environmental payments.

The amendments will enter into force on 1 January 2022, except for certain provisions the date of introduction of which are indicated above.